Reserve estimates Caspian provided by US vastly overstated

Oct 22, 1998 02:00 AM

The International oil companies preparing to recommend a new pipeline route for exports from Azerbaijan do not favour
the route through Turkey.
The pipeline from Azerbaijan to Turkey's Mediterranean outlet Ceyhan looked extremely unlikely to get the companies'
vote despite pressure from the governments of Azerbaijan, Turkey and the US.
Instead the consortium of companies were leaning heavily towards recommending building a cheaper line to the Georgian
Black Sea port of Supsa.

The Azerbaijan International Operating Consortium (AIOC) developing oilfields in the Azeri sector of the landlocked
Caspian Sea expects to make a recommendation by end-Oct. to the Azeri government for its main export pipeline
route.
The recommendation was likely to be made in such a way as not to offend Azerbaijan or Turkey and would probably not
exclude latter extending the line to Ceyhan once it became economically viable.
The government in Baku, which has repeatedly voiced support for the route to Ceyhan, has the final say in the matter
but is expected to implement AIOC's recommendations because the consortium is the only available financier.
BP and Amoco, soon to be merged, hold the largest shares in AIOC which combines 12 companies including state Azeri
SOCAR.

Baku to Ceyhan is the longest, and most expensive, of 3 possible routes to deliver Caspian crude to world
markets.
The others are through Georgia to Supsa, and to Russia's main Black Sea oil port of Novorosiisk.
There is already a pipeline carrying relatively small volumes of "early" oil to Novorosiisk, and a small line to
Supsa is now under construction.
The cost of the Ceyhan route could not be justified given current knowledge of the Caspian Sea's reserve base.
They said original reserve estimates provided by the US State department were vastly overstated.
Recent drilling results proved disappointing, and there was not enough oil definitely in place to justify the $ 4 bn
cost of Baku-Ceyhan.
Instead, they said,members of the consortium were leaning heavily towards the Supsa option, justified by the reserve
base currently proven in Azeri Caspian oilfields.
A Supsa line would pass close to the Turkish border, and could be extended to Ceyhan in future if reserves and the
oil price justified it.

Any pipeline would have to be financed by the private sector -- in effect by AIOC -- the only party which could
provide guaranteed throughput for the line. Even third-party financing would have to be repaid by AIOC in the form of
tariffs.

Despite US pressure to run the line to Ceyhan, any direct US government funding would appear politically
unacceptable.

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